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In a move that may be construed as an attempt to appease the domestic steel industry ahead of the general elections, the finance ministry on Monday imposed a five per cent export duty on iron ore pellets.
Considering the increase in the average speed of packing machines, it also increased the duty on paan masala and tobacco products along with a revision in the capacity of production.
The government had raised export duty from five per cent on fines and 15 per cent on lumps into a uniform 20 per cent in March 2011 and to 30 per cent in December 2011. However, iron ore pellets were exempt from the duty. In 2012-13, exports of iron ore pellets were negligible.
"However, in April-November 2013, exports of iron ore pellets have risen sharply, causing an apprehension about shortage of iron ore in the country. Iron ore is a critical raw material required for production of steel," said the Central Board of Excise & Customs in a notification.
Iron ore exports took a hit after the Supreme Court imposed a ban on mining last year, following widespread scandals in Karnataka and Goa. India's biggest destination for iron ore exports is China.
"They want to discourage iron ore exports in order to make the raw material available to the domestic steel industry. However, it's not good news for the Indian mining or iron ore industry, as their competitiveness in the exports market gets compromised," said Pratik Jain, partner, KPMG.
After an increase in import duty on iron lumps and fines, India, the third-largest iron ore exporter in the world, is expected to become a net importer of iron ore this financial year. In 2012-13, India exported 15.85 million tonnes (mt) of iron ore compared to 89.73 mt in 2010-2011. Similarly for Japan, iron ore exports have fallen to 2.16 mt in the last financial year from 5.45 mt in 2010-2011; for South Korea, export of iron ore stood at a mere 0.14 mt last year against 1.46 mt in 2010-2011, according to commerce department data.
Total iron ore exports have come down by a drastic 18.37 mt in 2012-2013 against 67.74 mt in 2011-2012 and 97.66 mt in 2010-2011.
The production of iron ore has come down from 218 mt in 2008-09 to 140 mt in 2012-13 due to the enforcement of strict environmental and other regulatory measures. The steel industry says it is forced to import iron ore because of the drop in production levels.
